Sipho Nkosi must be supported in drive to cut regulations

Phumlani Majozi says BEE is at the top of red tape harming business in SA

In his State of the Nation Address (SONA) last week, South Africa’s President Cyril Ramaphosa said, “There are too many regulations in this country that are unduly complicated, costly and difficult to comply with. This prevents companies from growing and creating jobs.”

These remarks, and the remarks that the private sector, not government, is the job-creator, were the President's most popular remarks from the SONA. 

Ramaphosa announced that he had appointed Sipho Nkosi, one of the country's respected, experienced businessmen and former CEO of Exxaro Resources to lead the Presidency's team tasked with cutting regulations. 

As I argued in my post-SONA column, Ramaphosa’s comments on the economy were sensible. He said things that he should have said and stressed in his first SONA as President of South Africa back in February 2018. This is how his presidency should have started.

However, what matters are action and implementation, not talk. South Africans know very well that the government has been terrible when it comes to implementation over the years.

That Ramaphosa plans to tackle regulations in the economy is encouraging. We are witnessing and living in an economy that is depressed, and excessive regulations are a contributor to this depression.

The President is right to say that government regulations are costly to businesses. The cost of compliance with the regulations slows down business growth. The consequence of this is destruction of jobs and job opportunities. In a country with the highest unemployment rate in the major emerging markets, regulations must be removed as soon as possible to help boost growth.

On a webinar last week organised by the North West University Business School, Piet Croucamp asked me which red tape is harming business in South Africa. It was an easy question to answer.

The black economic empowerment (BEE) regulations are at the top. The procurement process governed by BEE regulations can be long and costly for many businesses. The BEE regulations need to be relaxed to encourage business productivity.

In an article published by FA News last October, Gareth Stokes, a communication and content specialist, wrote that,

“Firms in the financial services sector face a raft of regulations over and above the standard set of business rules and regulations. They operate in a sector governed by 15 acts and accompanying regulations and standards, all overseen by the Financial Sector Conduct Authority (FSCA). These laws are in addition to the country’s complex competition, data protection, labour and tax laws.”

Stokes also points, as an example, to the irrational driver’s licence requirements – such as the “experiment” whereby South Africans have to “renew [our] drivers’ license card every five years”. This irrational regulatory requirement is costly for private citizens – and obviously costly for business, too – partly because of “bureaucratic ineptitude.”.

When I had left one radio station and was looking for a new job a few years ago, another station that would have hired me could not because of the Independent Communications Authority (ICASA)’s senseless programme scheduling regulations. Because of these ICASA regulations, I could not get the job. It was a lost opportunity for me – and a lost opportunity for the radio station as well.

There are many other regulations that complicate business and government operations in South Africa. If these regulations are all removed on a massive scale, our economy will take off in a few years.

I do not advocate and have not advocated for a society with no regulations whatsoever. Minimal regulation that will enforce contracts and strengthen law and order, however, is sufficient. It must be regulation for the benefit of the people, not for political motives as we often see in this country.

Our excessive regulations have increased labour costs in the economy. South Africa’s labour costs are the highest in the developing world. As far back as 2010, the World Bank pointed to South Africa's high labour costs as a deterrent to investment.

Because of overregulation, our country lacks competitiveness, as shown in the IMD World Competitiveness Index. In the 2021 list of 64 countries, South Africa was placed at 62nd, a decline from the previous year. We also score low in the World Economic Forum’s Global Competitiveness Report.

Many South Africans wrongly think that more government regulation is in the public interest. And politicians love enacting new laws – they believe their major responsibility in our society is to adopt more laws. Very wrong! Their mission ought to be to keep regulations as minimal as possible and more particularly to remove those regulations that impede growth.

Sipho Nkosi will face many challenges, including the inefficient, lacklustre government bureaucracy he will have to deal with. Judging by his resume, he’s a capable man with enormous experience. I hope his wisdom translates into a real, significant reduction in South Africa's excessive regulations.

We are fortunate that South Africa still has leaders of Nkosi’s calibre. I wish him success – and hope that he will be effective in his role.

Phumlani M. Majozi, a senior fellow at African Liberty, writes for the Free Market Foundation. His website is phumlanimajozi.com. Follow him on Twitter: @PhumlaniMMajozi. The views expressed in the article are the author’s and not necessarily shared by the members of the Foundation.